UK car manufacturing, imports and exports puzzle - a possible explanation.

From the European Automobile Manufacturers Association, shortly before GBP fell with a corresponding boost to exports/fall in imports:

80% of the UK’s automobile production is exported, of which 52.8% (worth €14.6 billion) goes to EU member states. The other way round, the EU represents 81% of the UK’s motor vehicle import volume, worth €44.7 billion.

In very round numbers and to exaggerate a bit, all cars manufactured in the UK are exported and all the cars we drive are imported. There is a huge amount of churn involved. This has been bugging me since Mrs W bought a new Ford Kuga last year which was shipped in from Spain, not made in Dagenham (any more).

A possible explanation occurred to me recently.

1. Different people want different kinds of car.

2. In olden times, there were lots of smaller manufacturers in each country, making lots of different models, so the chances were you could find something you liked made in your home country.*

3. There has been a lot of consolidation in the car industry, there are just a few very big manufacturers left.

4. Big manufacturers like big factories. Instead of having small factories dotted around Europe, they prefer making all their cars in the same place. So each country ends up with a handful of huge factories, each making a narrow range of cars. (We all know that Germany punches above its weight here, but even their manufacturers have shifted a lot of production to Spain or their eastern neighbours to keep costs down.)

5. So nowadays, wherever you are in Europe, if you want a Fiat, it will be made in Italy; if you want a Nissan or a Honda, it will be made in the UK; if you want a Ford, it will be made in Spain; if you need a car to bully people on the motorway, it will be made in Germany, and so on.

In other words, more specialisation leads to more trade (obviously) and vice versa.

This is thus also a distant cousin of comparative advantage, I suppose. The effect works on a national, continental and global level. The UK (like most EU Member States) exports far more cars to places outside the EU than it imports from outside the EU.

Or to put it another way, European countries are the best at car manufacturing, that's the Premier League, but within that Premier League, the UK is in mid-table and all the teams above it are German.

* The old rules still seem to apply to really low volume niche cars, like Noble, McLaren, Spyker, Pagani, Koenigsegg etc. Those are still dotted around across the continent, and if you have more money than sense, you'd probably go patriotic and buy one made in your own country, I know I would.

"We choose to… do the other things, not because they are easy but because they are hard." (2)

Before. Well, just after I started and then remembered I hadn't done the before photo:


After. I made it from decking material, so hopefully reasonably water resistant. There is a diagonal plank on the back (from bottom hinge to opposite corner) to keep it square. Mrs W insisted on fitting the grille herself, which is why it was inside out and upside down:

Extraterritoriality

This is simply a naked attempt at extraterritoriality.

Rather like this.

Best just to walk away...

Daily Mail on top form

Hedge fund boss accused of keeping his ex-Merrill Lynch Trader wife 'virtual prisoner' in their £3.4million Knightsbridge home 'demanded that she arranged his green beans neatly on his dinner plate'

What on earth difference does it make how much the house is worth to the severity of the crime (to the extent that a crime was committed)?

Mitchenson allegedly beat her over head with glass...

That sounds like a crime.

... and attacked her with pillow

That doesn't.

Strewth Sheila, 'Straya has fake charities too!

From the BBC:

The vast majority of Australians worry that national drinking habits are excessive, according to new research.

An online poll commissioned by the Foundation for Alcohol Research and Education (Fare) also found 92% of Australians believe alcohol is linked to domestic violence.

Fare surveyed 1,820 people across Australia...

Ho hum.

From FARE's our history page:

The Foundation for Alcohol Research and Education (FARE), formerly the Alcohol Education & Rehabilitation Foundation (AERF), is an independent, not-for-profit, national health organisation based in Canberra, Australia.

Established in 2001 by the Australian Parliament with a $115 million grant, the Foundation was set up to distribute funding for programs and research that aimed to prevent the harms caused by alcohol and licit substance misuse...

The balance sheet on page 11 of their 2015 accounts shows they've burned through two-thirds of the original $115 million.

Note 2 on page 20 shows all their investment income, the next largest source is government funding of $164,217, previous year $226,377.

Home-Owner-Ists 1: Economic reality 4.

From City AM:

New stamp duty rules are causing landlords to sell up in droves

An unforced own-goal right from the kick-off there. The extra 3% SDLT for non-owner occupiers might deter new landlords, but existing landlords are more likely to hang on to what they already own.

Last year the government introduced new rules meaning landlords could no longer claim relief on interest payments on their mortgages...

Another own goal in the third minute. They *can* claim relief, it will just be restricted to 20% (to be phased in over the next few years).

... at the time landlords warned it would put people off putting their homes up for rent, pushing up rental prices.

One apiece on the main point, everybody agreed it would force a few highly leveraged landlords to sell up; followed by a foul in the Homey's box and a penalty opportunity for Economic Reality.

Economic Reality's best striker is trotting up to the ball... the decider is, will more or fewer homes be up for rent and will rents go up or down?

Economic Reality says - when landlords sell up, it will be higher earning tenants who buy them, thus leaving a smaller pool of lower earning tenants, putting downward pressure on rents. This is quite the opposite of the Disappearing Homes Conundrum.

However, the figures also showed the supply of rental stock increased eight per cent in the year to March, from 169 properties per branch to 183. The figure was flat on February.

Back of the net! From the point of view of a BTL landlord, the interest acts like (privately collected) LVT so encourages them to make best use of what they own - get a tenant in or sell it; tax relief for interest ameliorates that, so reducing the value of the tax relief makes it a bit more like LVT again. An unexpected but welcome impact.

The number of tenants negotiating rent reductions also rose, with 3.6 per cent of agents saying they had witnessed tenants knocking down prices in March, compared with 2.2 per cent in February.

Some people are on the pitch. They think it's all over...

A quarter of agents said landlords had raised rents in March, down seven percentage points from March 2016.

It is now!

There's a right way and a wrong way to do everything.

The right way

From a London Assembly press release:

Recommendations include:

• The Mayor must take a visible lead in tackling FGM. The delivery of the Police and Crime Plan must demonstrate this commitment and drive a multi-agency response to FGM.

• A pan-London campaign to raise awareness of the real dangers of FGM, signposting women and girls to the support they require.

• Communities affected by FGM should be engaged to raise awareness, strengthen community-based prevention work and provide training for professionals.

• The Mayor must support the provision of bespoke training for London’s frontline practitioners.

• Support should be given to the police, health, social care and education services, voluntary organisations and communities.

The wrong way

From Sky News:

Mandatory checks are already law in France, which has had far greater success prosecuting FGM cases. Although it has been illegal in the UK since 1987, there have been no successful prosecutions.

Ms Parker said: "All these measures to combat this despicable crime are already law in France, a country that has a far, far better record than us on FGM. Not only have they proven effective both in protecting girls in France from FGM, they also help provide essential evidence to mount prosecutions where FGM has taken place. It is time the United Kingdom caught up."

Fun Online Polls: North Korea; The French presidential election

The results to last week's Fun Online Poll were as follows:

How would you prefer Donald Trump to deal with North Korea?

Stop ramping up the rhetoric and just ignore them - 28%
Try and persuade PR China to withdraw support - 44%
Continue with gunboat diplomacy - 6%
Drop a nuke on Pyongyang - 13%
Launch a full-on invasion - 2%
Other, please specify - 7%

Good, I voted for one of the first two (I think the second one), having read around, that does seem like the most sensible option.
-------------------------------------------
This week's Fun Online Poll, before it's superseded by events:

If you were voting in the French presidential election:

Macron - the Europhile former Rothschilds banker and Socialist minister, whose campaign was apparently funded by Goldman Sachs.

LePen - the other one..

Vote here or use the widget in the sidebar.

"Central London housebuilding collapses 75% as prices continue to fall"

From Property Investor Today:

The number of new homes breaking ground in central London has plunged by 75% year-on-year as house builders put planned projects on hold, and in some cases, scrap them altogether, in light of falling prices in the capital.

According to fresh data from JLL, just 1,270 residential properties were started in zones one and two in the final quarter of 2016, the lowest total for five years, as the “particularly low” figures seen in central London during the first three quarters of the year continued.

Stamp duty, in particular, continues to have a detrimental effect on the housing market in central London where properties command a price premium, resulting in a 10% levy up to £1.5m and 12% above that figure, which largely explains why fewer property transactions and lower prices are being achieved.

The number of homes changing hands in central London has been plummeting, illustrated by the 24% drop recorded in Q4 to just 1,880 transactions, while prices for newly built homes have fallen by 5.7% year-on-year, JLL found.

As Dinero commented to my post of Saturday: You don't need collusion and meetings for effects that are similar to that from a cartel. Just a restricted number of similar minded people with the same goal and information.

The end effect is indeed the same. When new homes are built and sold, it depresses prices in the very short term. Developers have found out by trial and error that this effect can be minimised if only one new home is sold for every nine existing homes bought and sold 'second hand', which is why they cap their output at this level. So if buyer interest falls, prices and volumes fall, and developers put projects on hold, maintaining the one-to-one ratio.

A explicit cartel is required to restrict supply and maintain prices if supply restrictions mean current revenue is lost which cannot be clawed back in future years. If hairdressers collude to restrict supply and push up prices, then people will let their hair grow longer between visits or learn to cut it themselves. Overall, hairdressers will lose revenue. Whether their profits are increased by this tactic depends on whether the reduction in marginal costs is more or less than the fall in revenue.

But the large developers are just land bankers, so they don't need to worry about whether they realise the profit from a site this year, next year or some years into the future. They can only sell each site once, there is no loss of revenue and as the land element is pure profit, there is no loss of profit. This also explains why the cartels for oil and diamonds have been relatively effective - you can only extract and sell oil or diamonds once.

Reader's Letter Of The Day

From yesterday's Evening Standard:

Developers on rely [sic] high house prices

Regardless of how liberal planning laws are, developers will cap their output at a level which does not lead to any significant falls in prices [Letters, April 18]. If they can sell new homes to wealthy overseas investors, then so much the better.*

This is not a housing crisis — it has been deliberately engineered. After 1945 UK housing policy was to limit rents, protect tenants, cap house prices indirectly by capping mortgages at two-and-a-half times earnings and ensure a ready supply of social housing. This led to a rapid increase in owner-occupation, the nigh-extinction of the landlord class and a small and stable banking sector. This was eventually reversed.

London First may call for more houses to be built but the backers on its website — banks, large landowners and property developers — are the very people who will do anything to ensure that rents and prices in London stay sky-high.

These people know full well that simply building more homes in itself solves nothing.

Mark Wadsworth​, Young People’s Party.

* They edited down my original opening paragraphs which explained the more subtle point:

Real-world evidence shows us that rents and prices in every country in the world are the highest in the largest cities. When more people will move into the new homes, this means a larger pool of potential employees and customers for businesses, which in turn means more job, leisure and social opportunities, all of which lead to yet a self-reinforcing cycle of even higher rents and even higher prices.

Real-world evidence also shows us that - regardless of how liberal planning laws are - developers will cap their output at a level which does not lead to any significant falls in prices. If they can sell the new homes to wealthy overseas investors who will leave them empty or merely collect the rent from younger workers, then so much the better. If prices show any sign of dipping, then projects are simply mothballed.